No matter what stage of divorce you're in, you need to get the upper hand on your economic situation. If you're in financial crisis, you need to gain control of the situation and learn how to budget effectively. There's no reason why you can't start now.
Here are my top 5 tips to get started:
TIP 1: Don't be scared: Don't waste a minute feeling scared or insecure about not knowing how to handle your finances. In the U.S., personal finance truly is the pink elephant in the room. If everyone got "financially naked" you'd be stunned by how many of your friends and neighbors (male and female) feel the exactly the same way!
TIP 2: Rethink your attitude toward savings: Many people think saving money is about deprivation. The truth is that saving is actually all about spending — spending that you'll do in the future instead of today. You save for three reasons: An emergency fund, retirement and big ticket items. Ideally, you'd be saving around 15% of any new money coming into your life from this point forward for spending you'll do down the road.
TIP 3: Determine your money inflows: This is a two-step process. First you'll want to see what money you have flowing in from sources like salary and wages, alimony, social security and interest/dividends from investments. Next you'll also want to add up any other lump sums of money such as savings accounts, brokerage accounts and retirement assets. This tells you how much you have at your disposal.
TIP 4: Identify your money outflows: This is another two-step process. If you think of your money as a pie, it gets divided into four basic slices. Taxes, Savings, Foundation Expenses ("needs") and Fun Expenses ("wants"). For most people taxes eat up 25% of their inflow. If you set aside 15% to savings, that leaves 60% for everything else.
To figure out where you stand financially, for two months, carry around a slip of paper in your purse and write down literally everything you spend money on. At the end of each month, take a good hard look at your slips and see how much you are spending on "Foundation" versus "Fun" expenses. If you're having trouble finding money to save, you'll most likely find the culprit in one of these two buckets.
TIP 5: Keep your investment life simple: You worked hard to save your money, now how do you make it work hard for you? Through investing. The rough rule of thumb is that money you need to spend in the next one- to five years, you don't want to "invest." So you need to "protect" it in a savings account, money market fund or Certificate of Deposit.
Money you don't need for at least five years, you are free to invest. Unless you love to pick stocks or research great money managers, the easiest route is to use target date retirement funds or index funds. The rough rule of thumb for women is that you want the percent of your long-term portfolio invested in stocks to be no more than 120 — your age with the remainder in bonds.
Manisha Thakor and Sharon Kedar are the authors of On My Own Two Feet: A Modern Girl's Guide to Personal Finance.
The other D-Word: How to Deal with Post-Divorce Debt, by Sanyika Calloway Boyce
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